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SOUTHSIDE BANCSHARES
Symbol U : SBSI
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Southside Bancshares, Inc. Announces Net Income for the Three Months and Year Ended December 31, 2012

2013-01-31 18:02 ET - News Release

TYLER, Texas, Jan. 31, 2013 (GLOBE NEWSWIRE) -- Southside Bancshares, Inc. ("Southside" or the "Company") (Nasdaq:SBSI) today reported its financial results for the three months and year ended December 31, 2012.

Southside reported net income of $8.2 million for the three months ended December 31, 2012, a decrease of $1.3 million, or 14.0%, when compared to the same period in 2011. Net income for the year ended December 31, 2012 decreased $4.4 million, or 11.3%, to $34.7 million when compared to $39.1 million for the same period in 2011.

Diluted earnings per common share were $0.47 and $0.55 for the three months ended December 31, 2012 and December 31, 2011, respectively. For the year ended December 31, 2012, diluted earnings per common share decreased $0.26, or 11.5% to $2.00 when compared to $2.26 for the same period in 2011.

The return on average shareholders' equity for the year ended December 31, 2012, was 12.83%, compared to 16.20% for the same period in 2011. The return on average assets was 1.05% for the year ended December 31, 2012 compared to 1.25% for the same period in 2011.

"We are pleased to report on the results for 2012 and the continued progress made during the fourth quarter," stated Sam Dawson, President and Chief Executive Officer of Southside Bancshares, Inc. "During 2012 we experienced a noticeable increase in loan demand which fortunately translated into a 16.2%, or $175.7 million, growth in loan balances outstanding. Our lending teams in all of the markets we serve report continued demand for capital and housing as we begin 2013. Overall credit in our loan portfolio remains sound. During 2012, we produced a double digit return on shareholder's equity of 12.83%. We used those earnings to increase cash dividends paid to shareholders by 29.7%, and repurchased just over $7.4 million in common stock at an average price of $20.86.

"As we look ahead to 2013, we look forward to opening a second branch in Austin during the first quarter. We are extremely pleased to report that we have hired two highly successful Austin veterans to complement the team at our existing branch. Leading this new endeavor is a talented Southside lender from East Texas that has strong ties to Austin. We anticipate this branch will generate primarily commercial loan business. We will continue enhancing our current markets and reviewing new markets that complement our existing franchise. Maintaining focus on continuing the loan growth momentum from 2012 into 2013 will be one of our top priorities. Through technology we are developing additional customer capabilities and increasing productivity. During 2013 we will review our overall cost structure for additional cost containment or cost reduction opportunities.

"During the fourth quarter, the overall securities portfolio decreased approximately $55 million. The largest decrease was in mortgage-backed securities ("MBS") which decreased approximately $108 million, primarily due to monthly principal roll-off. Purchases of MBS were limited, with the largest purchases being floating rate MBS as the risk/reward profile of the fixed rate portion of this sector remains less favorable, in management's view. The addition of the Federal Reserve purchasing $40 billion of MBS per month will likely further limit MBS purchases until the economics in this sector change. In addition we sold some of our longer maturity general market tax free municipal securities when the market pricing for these securities caused the economics of purchasing this sector to become unattractive. During the quarter our net purchases of U.S. Agency debentures were approximately $61 million and we also had purchases of $19 million of taxable municipals. As in the past, our strong preference for mostly Texas municipal credits remains.

"As a result of having excess funds at the Federal Reserve during the quarter, the purchase of floating rate MBS and U.S. Agency debentures, and fewer higher priced FHLB advances maturing, our net interest margin decreased 13 basis points during the fourth quarter of 2012, when compared to the third quarter. We anticipate any further pressure on our margin will be mitigated by the maturity of higher priced FHLB advances, the re-pricing of our trust preferred long-term debt, and potential future loan growth. During the first three quarters of 2013, $138.5 million of FHLB advances with an average cost of 3.81% will mature. Of that total, $66.8 million with an average cost of 3.63% will mature during the first quarter. In addition, $9.0 million of FHLB advances with an average cost of 2.65% matured on December 31, 2012. During the first quarter of 2013 we will also realize the full effect of the re-pricing of $36.1 million of long-term debt from an average fixed rate of 6.86% to an average floating rate of three-month LIBOR plus 1.64%.

"We look forward to growing our franchise and seizing opportunities during 2013. I would be remiss if I did not point out that our employees, officers and their customer focus are the key reasons for our success. On behalf of everyone at Southside, we appreciate your continued support. We look forward to serving our customers and executing our strategy during 2013."

Loans and Deposits

For the year ended December 31, 2012, total loans increased by $175.7 million, or 16.2%, when compared to December 31, 2011. During the year ended December 31, 2012, real estate 1-4 family increased $121.4 million, real estate other increased $30.2 million, municipal loans increased $13.7 million, construction loans increased $2.4 million, commercial loans increased $16.5 million, and loans to individuals decreased $8.4 million.

Nonperforming assets increased for the year ended December 31, 2012 by $1.5 million, or 11.6%, to $14.7 million, or 0.45% of total assets at December 31, 2012, when compared to 0.40% at December 31, 2011. This increase is primarily a result of an increase in restructured loans, repossessed assets and other real estate owned.

During the year ended December 31, 2012, deposits, net of brokered deposits, increased $174.6 million, or 8.1%, compared to December 31, 2011. During the year ended December 31, 2012, public fund deposits increased $112.2 million.

Net Interest Income for the Three Months

Net interest income decreased $4.0 million, or 16.2%, to $20.6 million for the three months ended December 31, 2012, when compared to $24.6 million for the same period in 2011. For the three months ended December 31, 2012, our net interest spread decreased to 2.88% when compared to 3.24% for the same period in 2011. The net interest margin decreased to 3.09% for the three months ended December 31, 2012 compared to 3.47% for the same period in 2011. The primary reason for the decrease in the net interest spread and margin was an increase in prepayments on our MBS which resulted in increased amortization expense.

Net Interest Income for the Year

Net interest income decreased $6.3 million, or 6.6%, to $89.1 million for the year ended December 31, 2012, when compared to $95.4 million for the same period in 2011. For the year ended December 31, 2012, our net interest spread decreased to 3.02% from 3.34% for the same period in 2011. The net interest margin decreased to 3.26% for the year ended December 31, 2012 compared to 3.60% for the same period in 2011. Increased prepayments on our MBS were the primary reason for the decrease in the net interest margin and spread.

Net Income for the Three Months

Net income decreased $1.3 million, or 14.0%, for the three months ended December 31, 2012 to $8.2 million when compared to the same period in 2011. The decrease was the result of a decrease in net interest income of $4.0 million, which was partially offset by a net $2.0 million increase in gain on sale of securities and fair value gain-securities and a decrease in impairment charges related to our FHLB advance option fees of $1.1 million.

Noninterest expense increased $1.6 million, or 9.0%, for the three months ended December 31, 2012, compared to the same period in 2011, primarily due to an increase in salaries and employee benefits and FDIC insurance.

Net Income for the Year

Net income for the year ended December 31, 2012 decreased $4.4 million, or 11.3%, to $34.7 million, when compared to $39.1 million for the same period in 2011. This decrease was due to a $6.3 million decrease in net interest income, a $3.2 million increase in provision for loan losses and a net $2.0 million decrease in gain on sale of securities and fair value gain-securities, partially offset by a $6.9 million decrease in the impairment charges on FHLB advance option fees.

Noninterest expense increased $3.8 million, or 5.2%, primarily as a result of an increase in salaries and employee benefits, telephone and communication expense, director fees and occupancy expense.

About Southside Bancshares, Inc.

Southside Bancshares, Inc. is a bank holding company with approximately $3.24 billion in assets that owns 100% of Southside Bank. Southside Bank currently has 48 banking centers in Texas and operates a network of 49 ATMs.

To learn more about Southside Bancshares, Inc., please visit our investor relations website at www.southside.com/investor. Our investor relations site provides a detailed overview of our activities, financial information and historical stock price data. To receive e-mail notification of company news, events and stock activity, please register on the E-mail Notification portion of the website. Questions or comments may be directed to Susan Hill at (903) 531-7220, or susan.hill@southside.com.

The Southside Bancshares, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9555

Forward-Looking Statements

Certain statements of other than historical fact that are contained in this document and in other written material, press releases and oral statements issued by or on behalf of the Company, a bank holding company, may be considered to be "forward-looking statements" within the meaning of and subject to the protections of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date.  These statements may include words such as "expect," "estimate," "project," "anticipate," "appear," "believe," "could," "should," "may," "likely," "intend," "probability," "risk," "target," "objective," "plans," "potential," and similar expressions. Forward-looking statements are statements with respect to the Company's beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. For example, discussions about trends in asset quality, capital, liquidity, growth and earnings and certain market risk disclosures, including the impact of interest rate and other economic uncertainty, are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future.  As a result, actual income gains and losses could materially differ from those that have been estimated.

Additional information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 under "Forward-Looking Information" and Item 1A. "Risk Factors," and in the Company's other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

     
     
 At
 December 31,
2012
At
December 31,

2011
  (dollars in thousands)
  (unaudited)
Selected Financial Condition Data (at end of period):    
     
Total assets $ 3,237,403 $ 3,303,817
Loans 1,262,977 1,087,230
Allowance for loan losses (20,585) (18,540)
Mortgage-backed and related securities:    
Available for sale, at estimated fair value 806,360 716,126
Securities carried at fair value though income 647,759
Held to maturity, at amortized cost 245,538 365,631
Investment securities:    
Available for sale, at estimated fair value 617,707 282,956
Held to maturity, at amortized cost 1,009 1,496
Federal Home Loan Bank stock, at cost 27,889 33,869
Deposits 2,351,897 2,321,671
Long-term obligations 429,408 321,035
Equity 257,763 258,927
Nonperforming assets 14,717 13,188
Nonaccrual loans 10,314 10,299
Accruing loans past due more than 90 days 15 5
Restructured loans 2,998 2,109
Other real estate owned 686 453
Repossessed assets 704 322
     
Asset Quality Ratios:    
Nonaccruing loans to total loans 0.82% 0.95%
Allowance for loan losses to nonaccruing loans 199.58 180.02
Allowance for loan losses to nonperforming assets 139.87 140.58
Allowance for loan losses to total loans 1.63 1.71
Nonperforming assets to total assets 0.45 0.40
Net charge-offs to average loans 0.74 0.92
     
Capital Ratios:    
Shareholders' equity to total assets 7.96 7.84
Average shareholders' equity to average total assets 8.17 7.69
 
Loan Portfolio Composition
 
The following table sets forth loan totals by category for the periods presented:
 
 
 At
 December 31,
2012
At
December 31,

2011
  (in thousands)
  (unaudited)
Real Estate Loans:    
Construction $ 113,744 $ 111,361
1-4 Family Residential 368,845 247,479
Other 236,760 206,519
Commercial Loans 160,058 143,552
Municipal Loans 220,947 207,261
Loans to Individuals 162,623 171,058
Total Loans $ 1,262,977 $ 1,087,230
     
     
 At or For theAt or For the
 Three Months Ended Year Ended
 December 31,December 31,
 2012201120122011
  (dollars in thousands)
  (unaudited)
Selected Operating Data:        
Total interest income $ 26,398 $ 32,756 $ 116,020 $ 131,038
Total interest expense 5,822 8,191 26,895 35,631
Net interest income 20,576 24,565 89,125 95,407
Provision for loan losses 2,245 2,044 10,736 7,496
Net interest income after provision for loan losses 18,331 22,521 78,389 87,911
Noninterest income        
Deposit services 3,940 3,938 15,433 15,943
Gain on sale of securities available for sale 4,395 2,715 17,966 11,795
Gain (loss) on sale of securities carried at fair value through income 345 (498) 937
         
Total other-than-temporary impairment losses (21)
Portion of loss recognized in other comprehensive income (before taxes) (160)
         
Net impairment losses recognized in earnings (181)
         
Fair value gain (loss) – securities (664) 6,693
FHLB advance option impairment charges (1,104) (2,031) (8,923)
Gain on sale of loans 376 263 1,119 1,230
Trust income 743 642 2,794 2,610
Bank owned life insurance income 330 252 1,110 1,087
Other 870 929 4,309 3,950
Total noninterest income 10,654 7,316 40,021 35,322
Noninterest expense        
Salaries and employee benefits 12,190 10,828 48,084 45,421
Occupancy expense 1,909 1,840 7,498 7,205
Equipment expense 599 497 2,169 2,055
Advertising, travel & entertainment 650 720 2,463 2,414
ATM and debit card expense 246 271 1,063 987
Director fees 411 330 1,213 914
Supplies 188 175 747 746
Professional fees 487 577 2,034 2,160
Postage 164 182 700 725
Telephone and communications 398 358 1,665 1,325
FDIC Insurance 431 107 1,744 1,817
Other 1,740 1,919 6,727 6,579
Total noninterest expense 19,413 17,804 76,107 72,348
Income before income tax expense 9,572 12,033 42,303 50,885
Provision for income tax expense 1,352 2,470 7,608 10,394
Net income 8,220 9,563 34,695 40,491
Less: Net income attributable to the noncontrolling interest (1,358)
Net income attributable to Southside Bancshares, Inc. $ 8,220 $ 9,563 $ 34,695 $ 39,133
         
         
Common share data attributable to Southside Bancshares, Inc:        
Weighted-average basic shares outstanding 17,272 17,298 17,325 17,272
Weighted-average diluted shares outstanding 17,285 17,309 17,337 17,280
Net income per common share        
Basic $ 0.47 $ 0.55 $ 2.00 $ 2.26
Diluted 0.47 0.55 2.00 2.26
Book value per common share 15.10 14.95
Cash dividend paid per common share 0.53 0.38 1.11 0.90
     
     
 At or For the
Three Months Ended
 December 31,
At or For the
Year Ended
December 31,
 2012201120122011
  (unaudited) (unaudited)
Selected Performance Ratios:        
Return on average assets 1.00% 1.14% 1.05% 1.25%
Return on average shareholders' equity 11.80 14.42 12.83 16.20
Average yield on interest earning assets 3.85 4.52 4.13 4.82
Average yield on interest bearing liabilities 0.97 1.28 1.11 1.48
Net interest spread 2.88 3.24 3.02 3.34
Net interest margin 3.09 3.47 3.26 3.60
Average interest earnings assets to average interest bearing liabilities 127.80 122.29 126.58 121.91
Noninterest expense to average total assets 2.36 2.13 2.30 2.30
Efficiency ratio 64.75 53.16 60.59 55.21
         
         
RESULTS OF OPERATIONS        
             
The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities.
             
             
  AVERAGE BALANCES AND YIELDS
  (dollars in thousands)
  (unaudited)
  Years Ended
  December 31, 2012 December 31, 2011
  AVG   AVG AVG   AVG
  BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS            
INTEREST EARNING ASSETS:            
Loans (1) (2) $ 1,180,095 $ 73,498 6.23% $ 1,054,882 $ 70,533 6.69%
Loans Held For Sale 1,694 59 3.48% 3,415 133 3.89%
Securities:            
Investment Securities (Taxable)(4) 35,217 519 1.47% 6,056 64 1.06%
Investment Securities (Tax-Exempt)(3)(4) 387,284 20,552 5.31% 293,044 18,776 6.41%
Mortgage-backed and Related Securities (4) 1,413,554 32,118 2.27% 1,534,837 51,467 3.35%
Total Securities 1,836,055 53,189 2.90% 1,833,937 70,307 3.83%
 FHLB stock and other investments, at cost 34,191 240 0.70% 30,937 233 0.75%
Interest Earning Deposits 20,809 37 0.18% 7,833 18 0.23%
Total Interest Earning Assets 3,072,844 127,023 4.13% 2,931,004 141,224 4.82%
NONINTEREST EARNING ASSETS:            
Cash and Due From Banks 42,938     41,280    
Bank Premises and Equipment 50,392     50,627    
Other Assets 163,402     137,166    
Less: Allowance for Loan Loss (19,922)     (18,965)    
Total Assets $ 3,309,654     $ 3,141,112    
LIABILITIES AND SHAREHOLDERS' EQUITY            
INTEREST BEARING LIABILITIES:            
Savings Deposits $ 96,854 $ 145 0.15% $ 86,417 $ 215 0.25%
Time Deposits 761,030 7,256 0.95% 860,614 11,229 1.30%
Interest Bearing Demand Deposits 892,798 3,440 0.39% 807,344 4,203 0.52%
Total Interest Bearing Deposits 1,750,682 10,841 0.62% 1,754,375 15,647 0.89%
Short-term Interest Bearing Liabilities 284,730 6,340 2.23% 297,960 6,577 2.21%
Long-term Interest Bearing Liabilities – FHLB Dallas 331,898 6,629 2.00% 291,586 10,141 3.48%
Long-term Debt (5) 60,311 3,085 5.12% 60,311 3,266 5.42%
Total Interest Bearing Liabilities 2,427,621 26,895 1.11% 2,404,232 35,631 1.48%
NONINTEREST BEARING LIABILITIES:            
Demand Deposits 564,007     459,594    
Other Liabilities 47,668     34,614    
Total Liabilities 3,039,296     2,898,440    
SHAREHOLDERS' EQUITY (6) 270,358     242,672    
Total Liabilities and Shareholders' Equity $ 3,309,654     $ 3,141,112    
NET INTEREST INCOME   $ 100,128     $ 105,593  
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS     3.26%     3.60%
NET INTEREST SPREAD     3.02%     3.34%
             
(1) Interest on loans includes fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $4,095 and $3,930 for the years ended December 31, 2012 and December 31, 2011, respectively.
(3) Interest income includes taxable-equivalent adjustments of $6,908 and $6,256 for the years ended December 31, 2012 and December 31, 2011, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents junior subordinated debentures issued by us to Southside Statutory Trust III, IV, and V in connection with the issuance by Southside Statutory Trust III of $20 million of trust preferred securities, Southside Statutory Trust IV of $22.5 million of trust preferred securities, Southside Statutory Trust V of $12.5 million of trust preferred securities and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust Company I of $3.5 million of trust preferred securities.
(6) Includes average equity of noncontrolling interest of $1,112 for the year ended December 31, 2011.
             
Note: As of December 31, 2012 and December 31, 2011, loans totaling $10,314 and $10,299, respectively, were on nonaccrual status. The policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when 
   
   
  AVERAGE BALANCES AND YIELDS
  (dollars in thousands)
  (unaudited)
  Three Months Ended
  December 31, 2012 December 31, 2011
  AVG   AVG AVG   AVG
  BALANCE INTEREST YIELD BALANCE INTEREST YIELD
ASSETS            
INTEREST EARNING ASSETS:            
Loans (1) (2) $ 1,241,006 $ 18,318 5.87% $ 1,069,612 $ 17,090 6.34%
Loans Held For Sale 1,625 14 3.43% 3,418 33 3.83%
Securities:            
Investment Securities (Taxable)(4) 123,864 446 1.43% 6,103 15 0.98%
Investment Securities (Tax-Exempt)(3)(4) 523,123 6,200 4.71% 282,042 4,578 6.44%
Mortgage-backed and Related Securities (4) 1,077,545 4,388 1.62% 1,706,606 13,568 3.15%
Total Securities 1,724,532 11,034 2.55% 1,994,751 18,161 3.61%
 FHLB stock and other investments, at cost 31,883 50 0.62% 33,285 51 0.61%
Interest Earning Deposits 40,815 18 0.18% 3,886 3 0.31%
Total Interest Earning Assets 3,039,861 29,434 3.85% 3,104,952 35,338 4.52%
NONINTEREST EARNING ASSETS:            
Cash and Due From Banks 46,006     38,938    
Bank Premises and Equipment 50,206     50,794    
Other Assets 150,679     141,207    
Less: Allowance for Loan Loss (20,398)     (18,093)    
Total Assets $ 3,266,354     $ 3,317,798    
LIABILITIES AND SHAREHOLDERS' EQUITY            
INTEREST BEARING LIABILITIES:            
Savings Deposits $ 100,319 $ 37 0.15% $ 90,920 $ 47 0.21%
Time Deposits 661,735 1,311 0.79% 874,131 2,675 1.21%
Interest Bearing Demand Deposits 958,004 878 0.36% 857,006 959 0.44%
Total Interest Bearing Deposits 1,720,058 2,226 0.51% 1,822,057 3,681 0.80%
Short-term Interest Bearing Liabilities 221,927 1,463 2.62% 390,630 1,500 1.52%
Long-term Interest Bearing Liabilities – FHLB Dallas 376,373 1,535 1.62% 266,074 2,183 3.26%
Long-term Debt (5) 60,311 598 3.94% 60,311 827 5.44%
Total Interest Bearing Liabilities 2,378,669 5,822 0.97% 2,539,072 8,191 1.28%
NONINTEREST BEARING LIABILITIES:            
Demand Deposits 574,046     474,847    
Other Liabilities 36,490     40,828    
Total Liabilities 2,989,205     3,054,747    
SHAREHOLDERS' EQUITY 277,149     263,051    
Total Liabilities and Shareholders' Equity $ 3,266,354     $ 3,317,798    
NET INTEREST INCOME   $ 23,612     $ 27,147  
NET INTEREST MARGIN ON AVERAGE EARNING ASSETS     3.09%     3.47%
NET INTEREST SPREAD     2.88%     3.24%
             
(1) Interest on loans includes fees on loans that are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $1,013 and $1,017 for the three months ended December 31, 2012 and December 31, 2011, respectively.
(3) Interest income includes taxable-equivalent adjustments of $2,023 and $1,565 for the three months ended December 31, 2012 and December 31, 2011, respectively.
(4) For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.
(5) Represents junior subordinated debentures issued by us to Southside Statutory Trust III, IV, and V in connection with the issuance by Southside Statutory Trust III of $20 million of trust preferred securities, Southside Statutory Trust IV of $22.5 million of trust preferred securities, Southside Statutory Trust V of $12.5 million of trust preferred securities and junior subordinated debentures issued by Fort Worth Bancshares, Inc. to Magnolia Trust Company I in connection with the issuance by Magnolia Trust Company I of $3.5 million of trust preferred securities.
             
Note: As of December 31, 2012 and December 31, 2011, loans totaling $10,314 and $10,299, respectively, were on nonaccrual status. The policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.
CONTACT: Susan Hill
         (903) 531-7220
         susan.hill@southside.com

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